What Is Section 199A Income on Your K-1?

Section 199A income on a K-1 is your share of profit from a partnership or S corporation that may qualify for a deduction of up to 20% on your personal return. Partnerships report it in Box 20 under Code Z; S corporations report it in Box 17 under Code V. You take those figures, run them through IRS Form 8995 or Form 8995-A, and enter the resulting deduction on line 13a of your Form 1040.

The dollar figure printed next to the code is rarely the whole story. It usually points to a supplemental statement attached to the K-1, and that attachment is where the calculation actually starts.

Where the Numbers Live on Your K-1

The Section 199A information sits in a specific spot depending on entity type:¹²

Partnership K-1 (Form 1065): Box 20, Code Z, labeled “Section 199A information.”
S corporation K-1 (Form 1120-S): Box 17, Code V, labeled “Section 199A information.”

The supplemental statement breaks out three figures you need to calculate the deduction: your share of ordinary business income (the QBI itself), your share of W-2 wages the business paid, and your share of the unadjusted basis immediately after acquisition (UBIA) of qualified property.¹ It should also flag whether the business is a specified service trade or business, and it should separately list any qualified REIT dividends or publicly traded partnership income.

If you hold K-1s from more than one entity, pull every supplemental statement together before you start. A missing attachment usually means either an understated deduction or an overstated one, and both create problems.

What Actually Counts as QBI

QBI is the net profit from a qualified domestic trade or business operated through a pass-through entity. Pass-throughs don’t pay federal income tax at the entity level; the income flows to the owners, who pay tax on their shares.³ Section 199A, added by the Tax Cuts and Jobs Act in 2017, gives non-corporate owners a deduction of up to 20% on that income.⁴

Several categories are carved out and don’t count as QBI:

Capital gains and losses, short-term or long-term.⁴
Guaranteed payments a partnership pays a partner for services.
Reasonable compensation an S corporation pays an owner-employee.
Dividends from regular corporations and interest income unconnected to the business.
Foreign-sourced income not effectively connected with a U.S. business.

The exclusion of guaranteed payments and shareholder wages catches people. If your partnership K-1 shows $200,000 of total distributive share but $80,000 of that was a guaranteed payment for your services, only the remaining $120,000 is potentially eligible for the deduction. A properly prepared supplemental statement will already separate these amounts.

REIT Dividends and PTP Income Are Separate

Qualified REIT dividends and qualified publicly traded partnership income are not part of QBI, but each qualifies for its own 20% deduction under Section 199A.⁵ The distinction matters because the REIT and PTP component is not subject to the W-2 wage and property caps that can shrink the QBI portion for higher earners. Your supplemental statement should list these amounts on their own lines.

Specified Service Trades or Businesses

Owners of certain professional service businesses face restrictions once their taxable income crosses the thresholds discussed below. These specified service trades or businesses, or SSTBs, include:⁶

Health care (physicians, dentists, veterinarians, pharmacists, and similar providers)
Law
Accounting
Actuarial science
Financial services and brokerage
Consulting, including lobbying
Performing arts
Athletics
Investing, investment management, trading, and dealing in securities or commodities
Any business whose principal asset is the reputation or skill of its owners or employees

The regulations draw sharper lines than the labels suggest. Health clubs and pharmaceutical manufacturing are not health-care SSTBs. Architecture and engineering firms are specifically excluded from the consulting category.⁶ If your taxable income sits below the lower threshold, SSTB status has no effect. The restriction only bites once income enters the phase-in range, and the deduction reaches zero for SSTB owners above the upper end.

Income Thresholds and the Wage-and-Property Cap

Below the income threshold, the deduction is simply 20% of QBI. For 2025, the thresholds are $197,300 for single filers and $394,600 for joint filers.⁷ These figures adjust annually for inflation. For 2026, the estimated thresholds are roughly $201,750 (single) and $403,500 (joint).

Above the threshold, a cap based on the business’s payroll and property applies. For each business, the deduction cannot exceed the greater of:⁴

50% of the W-2 wages the business paid during the year, or
25% of W-2 wages plus 2.5% of the UBIA of the business’s qualified depreciable property.

This is why the wage and UBIA figures on the supplemental statement carry weight. A profitable business that pays little in wages and owns little depreciable property generates a smaller deduction for high-income owners. Capital-intensive businesses such as manufacturing or real estate often produce a larger cap under the second formula.

The cap phases in over an income range above the threshold rather than snapping into place. The One Big Beautiful Bill Act, signed in July 2025, widened that phase-in range to $75,000 for single filers and $150,000 for joint filers, up from $50,000 and $100,000.

What UBIA Covers

UBIA is the original cost basis (before depreciation) of tangible, depreciable property held and used by the business to produce QBI. The property stays in the calculation until the later of ten years after being placed in service or the end of its regular depreciation recovery period.⁸

How to Report the Deduction on Form 1040

Once every K-1 and supplemental statement is in front of you, one of two IRS forms handles the calculation:⁷

Form 8995 (simplified) if your taxable income before the QBI deduction is at or below the threshold and none of your businesses are SSTBs.
Form 8995-A (detailed) if your income exceeds the threshold or you own an SSTB. It includes schedules for the W-2 wage limitation, SSTB phase-out, aggregation elections, and loss carryforwards.

Either form produces a final deduction that goes on line 13a of Form 1040. The deduction reduces taxable income, not adjusted gross income, so you can claim it on top of the standard deduction; you don’t need to itemize. The total deduction is also capped at 20% of your taxable income minus net capital gain. If your QBI-based figure comes to $30,000 but 20% of taxable income (less capital gain) is $22,000, you’re held to $22,000.

What Happens When a K-1 Reports a Loss

If a pass-through business reports a net loss, that loss reduces the QBI from your other pass-through entities in the same year. You net all QBI amounts, profitable and unprofitable, before applying the 20%.⁷

If the total is negative, you get no QBI deduction for the year (though REIT and PTP income are calculated separately). The negative amount carries forward and reduces next year’s deduction, even if the business that produced the loss no longer exists.⁷

Losses shown on a K-1 may be suspended by other rules, such as basis limitations, at-risk rules, passive activity rules, or the excess business loss limitation. Suspended losses don’t enter QBI until the year they’re finally allowed. When they release, you must separate the qualified portion from the non-qualified portion and treat the qualified portion as a QBI loss carryforward in that later year.⁷ Losses keep their character while suspended, and released losses are applied on a first-in, first-out basis.

Combining Businesses Through Aggregation

If you own interests in several pass-throughs, you can sometimes combine them into a single group for the wage-and-property cap. Pairing a business with high wages but modest profit with one that has large profit but no employees can produce a better result than treating each on its own.

Aggregation requires all of the following:⁹

The same person or group owns 50% or more of each business for the majority of the year, including the last day.
All businesses use the same taxable year.
None of the businesses is an SSTB.
The businesses meet at least two of these operational tests: they offer the same or commonly bundled products or services; they share facilities or centralized functions (accounting, HR, IT); or they operate in coordination, such as through supply-chain dependencies.

The election is made on Schedule B of Form 8995-A, and once made it generally binds you to keep aggregating those businesses in future years.

Rental Real Estate Held Through a K-1

Rental income from a partnership or S corporation can qualify for the QBI deduction. Revenue Procedure 2019-38 provides a safe harbor: meet its requirements, and the IRS treats the rental activity as a qualified trade or business without further inquiry.¹⁰

250 hours of rental services per year. Enterprises less than four years old must hit 250 hours every year; older enterprises need 250 hours in any three of the last five tax years.
Contemporaneous records showing who performed the services, what was done, and when.
Separate books and records for each rental enterprise.
A statement attached to a timely filed return claiming the safe harbor.

Qualifying services include maintenance, repairs, rent collection, tenant management, and supervision of workers performing those tasks. Triple-net leases, where the tenant handles nearly all property responsibilities, do not qualify for the safe harbor.¹⁰

The Deduction After 2025

Section 199A was originally scheduled to expire after December 31, 2025. The One Big Beautiful Bill Act, signed on July 4, 2025, made the 20% deduction permanent. Three changes take effect for tax years beginning in 2026:

The phase-in range above the income threshold widened to $75,000 for single filers and $150,000 for joint filers, up from $50,000 and $100,000.
A $400 minimum deduction is available to any taxpayer with at least $1,000 of active QBI, even if the standard calculation produces less. The $400 will be inflation-adjusted in future years.
Income thresholds continue to be indexed annually, with 2026 estimated at roughly $201,750 (single) and $403,500 (joint).

If you planned around the deduction sunsetting, you can plan differently. K-1 recipients will continue reporting Section 199A information in Box 20 Code Z or Box 17 Code V, and the 20% deduction remains available.

1
Internal Revenue Service. Partner’s Instructions for Schedule K-1 (Form 1065) (2025) – Section: Box 20 Other Information
2
IRS.gov. Shareholder’s Instructions for Schedule K-1 (Form 1120-S) – Section: Box 17 Other Information
3
Legal Information Institute. Pass-Through Taxation
4
Office of the Law Revision Counsel. 26 USC 199A – Qualified Business Income
5
Internal Revenue Service. Qualified Business Income Deduction
6
eCFR. 26 CFR 1.199A-5 – Specified Service Trades or Businesses and the Trade or Business of Performing Services as an Employee
7
Internal Revenue Service. Instructions for Form 8995 (2025)
8
eCFR. 26 CFR 1.199A-2 – Determination of W-2 Wages and Unadjusted Basis Immediately After Acquisition of Qualified Property
9
eCFR. 26 CFR 1.199A-4 – Aggregation
10
IRS.gov. Revenue Procedure 2019-38 – Rental Real Estate Safe Harbor